Mortgage lender Paragon Group has welcomed Government commitments to build new homes, support for first-time buyers and measures to attract increased investment in the private rented sector.

The Government is set to underwrite mortgages for first-time buyers as part of efforts to “unstick” the housing market.

The drive also includes a £400 million scheme targeting housebuilding schemes that have stalled through a lack of development finance.

Commenting on the strategy, Paragon Group Chief Executive Nigel Terrington said: “We welcome any measures that will help stimulate both the housing and mortgage markets. It is clear that the UK has a serious housing problem, with not enough homes being built and a lack of mortgage finance.

“Current housing completions simply aren’t sufficient to meet forecast household formations, so a commitment to build thousands of new homes is a positive start, whilst plans to support homebuyers through the mortgage indemnity scheme will stimulate the first time buyer market. It is crucial to the success of the mortgage market and the economy that we have a housing market in balance and with growth options across both the rental and owner-occupied sectors.”

Despite the welcome from the finance sector, Labour branded the action “small beer” and insisted far more was needed to get the economy going again.

Fears have been growing of a “perfect storm” in housing, with construction at its lowest since the Second World War, mortgage lending tightly restricted, and rent and purchase prices stubbornly high.

The report – Laying The Foundations: A Housing Strategy For England – sets out details of a range of policies to revive the industry and solve the homes shortage, such as boosting right-to-buy council home discounts.

More public land is also being made available for development, and money has been earmarked to bring empty houses back into use.

The £400 million Get Britain Building fund will target housebuilding schemes that have stalled through a lack of development finance.

It is set to “unlock” the construction of up to 16,000 homes and around 3,200 of those would be affordable properties, according to Downing Street.

The cash injection will also support up to 32,000 jobs, according to officials.

It comes on top of a £500 million Growing Places Fund for development announced earlier this month.

The Government will underwrite the risk of some lending on newly built homes.

It is hoped the move will help first-time buyers get on the property ladder by allowing deposits to drop from 20% to as little as 5%.

In a joint foreword to the report, the Prime Minister and Mr Clegg said: “One of the most important things each generation can do for the next is to build high-quality homes that will stand the test of time. But for decades in Britain we have under-built.

“These problems - entrenched over decades - have deepened over the past few years. The housing market is one of the biggest victims of the credit crunch: lenders won’t lend, so builders can’t build and buyers can’t buy.”

They added: “With this strategy, we will unlock the housing market, get Britain building again, and give many more people the satisfaction and security that comes from stepping over their own threshold. These plans are ambitious - but we are determined to deliver on them.”